From History&Policy – What does British imperial economic history tell us about the future of UK-EU trading relations?

Post-Brexit UK-European Union (EU) trading relations will take one of three forms:

(1) The UK will remain part of the EU customs union

(2) UK-EU trade will be governed by World Trade Organisation (WTO) rules

(3) The UK and EU will enter a free trade pact.

Option (1) is economically optimal but has been declared politically unfeasible because it requires the UK to commit to the free movement of labour between the EU and the UK. Such conditionality is essential because economies grow unevenly and, in the absence of independent currencies across Europe and/or a central European state to pool the risk of unemployment, free movement of labour is the mechanism for redistributing the gains from EU growth.

Economics (not history) is the best guide here.

Most parties agree that option (2) is the solution of last resort. Much has been made of its impact on complex cross-border trade in manufactured goods, but trade in services may be more problematic. The General Agreement on Trade in Services governs international trade, but can these rules handle disputes regarding trade in services across highly integrated economies subject to disintegration post-Brexit?

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